Editorial: Restructuring the financial industry

Sun, Mar 10, 2013 - Page 8

The government has long proclaimed that one of its policies is to promote the consolidation of the nation’s fragmented financial industry and boost domestic lenders’ global competitiveness. However, it is often the government itself that stands in the way of achieving these goals.

Last month, the privately owned Taishin Financial Holding Co renewed its efforts to merge its flagship subsidiary, Taishin International Bank, with state-owned Chang Hwa Commercial Bank. It made a proposal to the Ministry of Finance, Chang Hwa Bank’s second-largest shareholder, to support the idea of Chang Hwa Bank acquiring Taishin Bank.

When Taishin Financial bought a 22.55 percent stake in Chang Hwa Bank in 2005, it proposed that Taishin Bank take over the larger state-run business, but that plan was shelved because of objections from Chang Hwa Bank’s union, and due to controversy related to the second phase of financial reforms initiated by then-president Chen Shui-bian (陳水扁).

The ministry objected to Taishin Financial’s new offer on the grounds that it was not in the interests of Chang Hwa customers, shareholders and employees, saying it was only a scheme to help expand Taishin Financial’s influence over the state-owned bank. The ministry also changed directors sitting on Chang Hwa’s board to prepare for a possible boardroom battle.

However, does any law prevent Taishin Financial from pursuing a merger of the two banks?

Had the government approved the share sale seven years ago, would Taishin Financial have invested its funds to assist in clearing Chang Hwa’s bad assets and help turn the bank around?

Let us assume that the ministry’s concern about Chang Hwa shareholders and employees was a well-intentioned effort to keep government shareholdings intact — who can protect the interests of Taishin Financial shareholders and employees?

Why is the government so preoccupied with fear of reducing its stakes in state-owned banks? Isn’t its policy to expand the scale of domestic lenders and enable them to compete in regional or global markets?

Concern about the financial consolidation process benefiting certain large conglomerates is inevitable, but can the government assure the public that these consolidations will be carried out efficiently and fairly? The government’s preoccupation with the possibility of private investors and conglomerates taking advantage of state-owned banks is just an excuse for it to do nothing.

Although the ministry has said it encourages financial consolidation, the message given by its objection to Taishin Financial’s latest offer signifies a backing away from this policy. Therefore, the government is creating perception problems for itself by giving the impression that it is committed to financial reforms when in reality it is not, suggesting it is incompetent and irresponsible.

More troubling is whether businesses will continue to trust government pledges and keep participating in government-initiated investment projects.

There is no “too-big-to-fail” problem in Taiwan’s financial industry, which is overly crowded and lacks dominant banks that can compete with foreign rivals. There is consensus among the public that the government should deregulate the financial industry to meet the diverse demands of society and assist the economy in the long term. However, can the government ensure a level playing field while pursuing financial reforms?

The government can look at ways to fine-tune its deal with Taishin Financial concerning the Chang Hwa Bank debacle, but by taking no action and stepping away from the financial consolidation policy it will simply create a “lose-lose” situation for itself and the financial industry.

It does not require much intelligence to recognize that the government is in danger of creating distrust.